3 Reasons A Municipal Bank Is A Bad Idea

Mayoral candidate Anthony Williams has been floating an idea for a municipal bank. The proposed bank, which would be owned and run by the city would focus on helping small businesses in the city who are unable to get loans from mainstream banks.

I not only run a small business but I also write every day on small business topics for the Washington Post and every week for Forbes, Inc. and Entrepreneur magazines. My company has more than 600 small business clients and I speak to and interview thousands of small business owners around the country every year. If you’re familiar with the other things I write for Philly Mag you may agree that I don’t know much about a lot of things. But please allow that I’m more than a little familiar with the issues facing the country’s 30 million small businesses, let alone the tens of thousands in this city. So with that in mind I feel obligated to help Anthony Williams because he seems like a nice guy.

Mr. Williams…the municipal bank thing? Not a great idea. And here’s why.

• Getting capital is just not a significant issue for small businesses in today’s current economic climate. Sure, there are some that struggle with this and that will always be the case. But the great majority are not.

For proof, consider the dozens of surveys that are annually produced by larger companies studying the small business marketplace. Just by reading a recap of a few of the bigger ones late last year you’ll quickly see that financing concerns are not among the top issues small business owners face. Business owners around the country are worried about increasing regulation, taxes, healthcare reform, economic growth and how to find and motivate skilled people. Business lending, particularly by smaller banks is up sharply. The Small Business Administration hit another lending record in 2014. Microlenders like CAN Capital are securing hundreds of millions of dollars to finance small businesses. New peer-to-peer lending services like Lending Club and Prosper are re-shaping the way loans are offered to small businesses. And keep an eye on Washington, because many are expecting the SEC to further relax crowdfunding rules this year which will significantly increase the availability of capital to small businesses. Sure, some of this may be a little more expensive than a traditional bank loan but rest assured, there’s plenty of money out there for the business owner who is capable and just a little bit credit-worthy.

• The city can devote its resources in other, better ways to help the small business community. Providing a safe, clean environment to attract more residents and visitors will attract more start-ups, shops and companies so making our police force the very best in the country would be the a good start. Instead of a municipal bank, carving out a one-stop-shop in City Hall exclusively devoted to helping small businesses navigate the bureaucratic and intimidating maze of permits and regulations would be a huge help. Avoiding excessive regulations like the recent sick pay law would enable business people more flexibility to make their profits and employ more people. Figuring out a way to fund the city’s schools (and NOT the ways previously offered by the candidates that Mayor Nutter and city finance chief recently shot down as “bogus”) would attract more middle class families and companies to the city instead of driving them to the better schools in the suburbs. And if all of this could be done without raising taxes? Or even decreasing taxes for businesses? Be still, my heart!

• Finally – the city just can’t afford this, financially or politically. As Philly Mag’s own Patrick Kerkstra correctly puts it: “If the plan ever gets fleshed out enough to develop into a firm proposal, it would likely face a lot of hurdles—both legal and political. Municipal banks clash with the constitutions of a lot of states, though it’s not clear that would be the case in Pennsylvania. Then there’s the more basic political challenge of selling the public on the notion that City Hall ought to run a bank.”

A municipal bank is just not on the list of things that the next mayor of Philadelphia should be doing to help small businesses in the city. Let’s put that idea on the “nice try/good intentions” shelf and move on to something more substantive.